It’s been heavy going for the Aussie gold miners in recent years. While the stock market has moved straight up without reprieve, other macro forces haven’t been so kind to this sector. In a perfect world, the gold miners would like higher gold prices (the price paid for their product), and a weaker dollar (the currency that effects the competitiveness of their product), but the market has dealt them neither.

The weaker gold price has been especially tough, a serious headwind for companies such as
Newcrest Mining
(NCM), which is by far and away our biggest gold miner – producing 1.63 million ounces of gold a year. As you can see from the chart below, Newcrest Mining carved out a major top in March 2011, and has been in an eye-watering downtrend since then, wiping out some 85 per cent of its market capitalisation in that time.

The downtrend has been persistent, and Newcrest obviously wants to see gold get a wriggle on here, or at the very least stabilise - which is kind of what we’ve seen in recent months, as a trading range has developed between $US1200 and $US1400 an ounce.

But more importantly, Newcrest Mining itself is starting to look strong, and I am seeing evidence of a possible turn. (Interestingly, Newcrest topped out a few months before gold did in 2011, and it’s possible this scenario could be playing out again.)

AFR
AFR

The volume readings are a major positive, having picked up considerably since Newcrest touched the lows at $6.00, increasing the odds of a major base around these levels. The odds would improve significantly if the downtrend line (A-B) and H&S neckline can both be overcome at $12.00. That would also confirm a change in trend - from one of lower lows and highs, to one of higher highs and higher lows.

If these important hurdles can be overcome, the next target and resistance level would be $20.00.

Like NCM, gold is still dominated by a long-term downtrend. Recent attempts to reverse the downtrend have failed, most recently at $US1400. Until those levels are decisively breached, the line of least resistance is still down. The next support level is at $US1200, which has already been tested twice and has so far held. This is most likely part of a slow grinding bottoming process.

Richard Lie is the founder of the hedge fund Crusader Capital Management, and the stock advisory service Stockradar.com.au which is currently offering free trials.